States making progress in evaluating tax incentives; new tool explores costs and benefits

A recent article from Pew Charitable Trusts shows how routine evaluations can help states make tangible improvements to their tax incentives. According to Pew, 30 states now have laws requiring evaluation of the incentives, and recent examinations in several states included key components that helped to inform the results. When analyses started with an effort to determine the specific goals of each incentive, their effectiveness was more easily determined. High-quality evaluations also measured economic impact. For instance, Rhode Island’s evaluation of the Motion Picture Production Tax Credit showed that revenue gained would never match the cost of the program.

Pew recommends that states should create processes to regularly study tax incentives, produce high-quality evaluations that draw clear conclusions, and use the findings to inform policy decisions. Pew found that when policy makers have high-quality evaluations, they use them, which may mean a decision to end a program that is not performing as expected.

Pew has also released an interactive data visualization tool that lets users explore how different factors affect economic development incentives. Costs, targets (exporters, high-impact companies, or locally owned companies), design, and economic conditions are all explored and results may help users understand how the varying policies can impact government budgets and state economies.